NEDonBoard recently welcomed James Wates CBE, chair of the Wates group and the chair of the coalition group for the Wates Corporate Governance Principles for Large Private Companies (the Principles), to an event promoting the Principles. The discussion was chaired by Clare Chalmers, an experienced board effectiveness reviewer and NED, and was introduced by Ben Ward, corporate partner at Herbert Smith Freehills, our host for the evening. Key points from the discussion are outlined below.
The coalition group included a broad spectrum of participants who agreed that the Principles should not restrict companies that pride themselves on being agile and forward-looking. Therefore, the objectives of the Principles are to:
- Raise standards.
- Challenge companies.
- Not to be prescriptive.
- Focus on opportunities (not only on risks).
The coalition did not want the Principles to be a “tick the box” exercise for companies but rather the basis of discussions at board level about corporate purpose, culture, remuneration and stakeholders.
Stakeholder engagement is key
Stakeholder engagement was one of the most debated Principles. It is also the main area for improvement in large private companies and the most challenging of the six Principles. This Principle encourages companies to engage with stakeholders, understand their issues and respond.
The first step in applying this Principle is to identify all stakeholders, establish the process to engage with them and determine how feedback may be actioned. The view of the coalition is that mutual trust with stakeholders is vital and that businesses who actively engage with their stakeholders are a force for good in society
Tips on applying the Principles
The application of the Principles should be led jointly by the chair and the company secretary. In most companies, it is expected that the chair of the board will work with the senior executives, the board and the company secretary to apply the Principles. James Wates estimates that the time required to apply the Principles to already well-run companies should not exceed three months.
Monitoring application of the Principles
James Wates encourages companies and boards to use the Principles because they support business and provide a sensible process for running private companies. At this stage, it is not known how they will be adopted. No private company has yet reported on the Principles as they only came into force on 1 January 2019.
The FRC is most likely to be in charge of monitoring the application of the Principles. There are several players looking into them, including the audit firms, lawyers and organisations like NEDonBoard. Success will be measured as data is collected. James Wates expects that the implementation of the Principles will be the subject of academic work in three years’ time.
Practical Law has published:
- Video, Wates Corporate Governance Principles for Large Private Companies featuring David Styles, Director of Corporate Governance and Stewardship at the FRC, in which he discusses the rationale for the new governance reporting requirements for large private companies and how these companies can use the Wates Principles to assist them in their governance disclosures.
- Checklist, Applying the Wates principles for large private companies: questions to ask for use by companies who have chosen to apply the Wates principles as a corporate governance code for financial years beginning on or after 1 January 2019.
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